This month’s recommended read is based on an article from Reuters that discusses the rising oil prices. You can read the original article here.
There are many factors contributing to the rise in crude prices with the upcoming OPEC meeting carrying a majority of the influence. Just as OPEC’s influence is fading, the demand for U.S. crude is increasing. That demand could help the OPEC countries achieve a reasonably higher price even without their strong influence.
Demand and prices are currently in a “testing mode.” Supply is flowing in from areas that have not been large contributors in the past, and their supply levels aren’t completely transparent. The Energy Information Administration’s (EIA) storage indicates levels are well above last year, but the drawdowns in recent months have eaten away at the supply. Contrary to initial reactions, this year’s barrage of hurricanes didn’t impose an immediate effect on oil levels when it would usually have an instant impact, as seen in recent years. Many of the large drawdowns were met with a selloff in crude, and vice versa, with the current rally is taking a delayed effect. However, as traders diagnose the numbers and the timeline given to cut supply, we should continue to expect fundamentals to be in opposition to price.
The other major factor will be the economy. We believe it is unlikely that we will reach $100 per barrel in the near future, unless it is proven that we are at the beginning of a growth period. As some economists predict, the higher price of oil ($50 and above) may be the accepted inflationary level we will all have to accept.